Bank of England Governor Delays Rate Hike Decision Amid Energy Crisis

At the International Monetary Fund (IMF) gathering in Washington, Bank of England governor Andrew Bailey emphasized that the UK’s central bank is not hastening its decision on raising interest rates, despite global challenges including a “very big energy shock.” He highlighted that while increased oil and gas prices are expected to influence inflation, other variables complicate the rate decision, with the next meeting set for 30 April.

IMF Advises Caution on Rate Increases

The IMF cautioned against quick rate hikes following the Middle East conflict, urging central banks to take time in assessing the situation. Bailey acknowledged the IMF’s “serious advice,” noting that the Bank of England is carefully weighing its implications. Prior to the US-Israeli strikes on Iran six weeks ago, the UK had anticipated rate cuts, but the energy cost dilemma has shifted expectations toward holding rates steady or even increasing them.

“There’s really difficult judgments to be made,” Bailey remarked. “We’re not going to rush to judgments on those things, because there are a lot of uncertainties around this, not just how it’s going to play out, but also how it’s going to pass through into the UK economy.”

Higher energy prices could both elevate inflation and hinder growth, complicating the Bank’s task. Bailey pointed out that the UK’s reliance on gas as a primary energy source means any disruption will have a substantial effect. However, he stressed that the key factor remains the duration of the conflict. “The faster there is a resolution to this situation—particularly regarding energy supply from the Gulf—the easier and better the outcome will be,” he added.

Conflicting Views on the Conflict’s Impact

On Wednesday, UK Chancellor Rachel Reeves criticized the Iran conflict, citing its effect on prices and growth during a media interview at the IMF event. Conversely, US Treasury Secretary Scott Bessent argued that a “small bit of economic pain” is acceptable for long-term international security. He suggested that the threat of nuclear missiles from Iran justifies the risk.

“Bessent’s comment came as the International Monetary Fund (IMF) warned the US-Israel war with Iran could plunge the global economy into recession, with the UK expected to be hardest hit of the large economies,” a UK government spokesperson noted.